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In 2015, premium volume for private Swiss life insurers covering occupational pensions was CHF 24.8 billion. At 0.7%, volume grew at less than half the rate seen in the previous year. This reflects their diminished capacity and willingness to write new full value business. Life insurers generated an aggregate gross income of CHF 8.5 billion, with 92.5% returned to insured persons. With interest rates at record lows, life insurers face major challenges.

The eight life insurers supervised by the Swiss Financial Market Supervisory Authority FINMA, which operate in the field of occupational old-age, survivors’ and disability pensions, have an important role to play. They manage about a fifth of all pension assets (CHF 192 billion of a total of CHF 967 billion at the end of 2014). They provide cover for nearly half of four million active insured persons and serve around a fifth of the country’s 1.07 million pensioners (as at the end of 2014). Insurers assume all or part of the risk coverage from occupational pension institutions through full value insurance or reinsurance as well as the management of pension assets. In 2015, the premium volume acquired by life insurers rose only slightly by 0.7%. This reflects the fact that they are increasingly cutting back on the writing of new full value business. No life insurer is currently offering additional capacity and no new providers have entered the market since the Swiss Occupational Pensions Act took effect. This restraint on the part of providers is probably due to the capital intensity of the business, the regulatory restrictions on opportunities for profit and the mandatory conversion and minimum interest rates, which appear high in the current environment. As a consequence, many occupational pension institutions are unable to find any full value insurance solutions. Here demand exceeds supply.

92.5% of gross income returned to insured persons

In 2015, private life insurers operating in the field of occupational pensions generated a total gross income of CHF 8.5 billion within the savings, risk and cost processes. 92.5%of this was returned to policyholders in the form of pension benefits, increasing technical provisions and allocations to the surplus fund. The minimum ratio required by law is 90% (see also Fact sheet on the minimum quota).

Once again life insurers posted positive operating results from occupational pension activities in 2015, totalling CHF 638 million for the eight insurers in this sector. The annual result from the occupational pension business is incorporated in the company result. Insurers subsequently determine how the result will be appropriated.

The investment income from the savings process earned by private life insurers in 2015 was in line with previous years. Between 2005 and 2015, the average annualised net return on investments was 3.0% per year. Allowing for changes in value, investment performance in 2015 was 1.9%, following the high figure of 8.6% in the previous year and a slightly negative percentage in 2013. These fluctuations illustrate how heavily exposed insurers are to capital market risks.

In 2013, expenditure on claims rose by 21%, but since then it has fallen: in 2014 by 13% and in 2015 by 5%. Given the slight decrease in income from premiums in 2015, this resulted in a claims ratio of 55% in the risk process. Thanks to the overall positive results, the technical provisions for old-age and survivors’ pension obligations were boosted by CHF 1,740 million in total. Investment yields were eroded by the historically low interest rates. As a consequence, life insurers reduced their technical interest rate for calculating actuarial reserves to an average of 1.6%.

Cost process: further drop in per capita costs

Reported per capita operating costs were 5% lower on average year-on-year. This is the eighth year in a row that costs have fallen. While per capita costs were still as high as CHF 462 in 2007, they were down to CHF 337 in 2015.

FINMA ensures transparency

This is the eleventh year in which FINMA has published a full report on the operating accounts for the occupational pension business of private Swiss life insurers. In publishing this report, FINMA aims to achieve transparency with regard to key indicators such as costs, dividend payouts and investments. The data reveal the strengths and weaknesses of market players, enabling businesses seeking pension cover from private life insurers to compare performance.

FINMA’s role

Supervision by FINMA is designed to ensure that the occupational pension assets entrusted to life insurers are safeguarded and used in compliance with the law. Firstly, guaranteed insurance obligations are fully covered by separate tied assets that are subject to strict requirements with regard to investment quality, risk diversification, permitted asset classes, risk management and administration. Secondly, all life insurers must maintain sufficient, prudently calculated technical provisions enabling them to meet their insurance obligations at all times. The aim is to ensure that insured persons are protected over the long term. And finally, life insurers must retain enough capital to safeguard the entitlements of policyholders to a high standard. As in all other lines of insurance business, this is assessed with the aid of the Swiss Solvency Test (SST).

Definitions:

Savings process: the expenditure arising in the savings process includes the payment of interest on retirement assets, the conversion of retirement assets into old-age pensions, and the settlement of old-age and survivors’ pensions. Income from the savings process is generated from the net income on investments.

Risk process: the expenditure incurred in the risk process includes amounts paid out for death and disability benefits (in the form of capital lump sums and annuities). Income is generated from risk premiums.

Cost process: the income in this process comes from cost premiums. Expenditure arises from the distribution and management of occupational pension insurance along with the associated advisory and other services.

Operating result: the life insurer’s share in the aggregate income from these three processes once the share attributable to insured persons has been allocated to the surplus fund. It is used to secure the insurers’ solvency and compensate capital providers.

Net return on investments: ratio of income, less asset management costs for investments over the average book value for investments.

Breakdown of premium volume:

Individual deposits of retirement assets, primarily from new employees

Deposits of retirement assets resulting from new affiliations and transferred contracts

One-off deposits for transferred old age and survivors' pensions

One-off deposits for transferred disability pensions

One-off deposits for transferred vested benefit policies

Savings premiums for building retirement savings capital

Risk premiums for death and disability risks

Cost premiums for management, services and consultancy

Only the risk and cost premiums generate income for the three processes (see above).
All other premiums are credited directly to the retirement assets of insured persons and actuarial reserves for pension recipients.

Technical interest rate: the technical interest rate is the rate used to calculate actuarial reserves required for pensions. As individual pensions will only become due in the future, they have to be discounted over the disbursement period back to the time of conversion. The lower the technical interest rate, the higher the actuarial reserves and hence the safety of the pensions to be paid out in the future.